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LM3 > Chapter 2: Role, Purpose and Implications of Policy Wordings > Flashcards

Chapter 2: Role, Purpose and Implications of Policy Wordings Flashcards

16 Exam Qs (74 cards)

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1
Q

State driven insurance

A

Mandatory insurance required by the state (e..g Road traffic act 1988)

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2
Q

Third party driven insurance

A

Contractor might need to show they have PL insurance

Not a state requirement but failure to comply would have a negative business impact

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3
Q

Is flexibility the same as ambiguity

A

No, A contract can be wide and flexible but also clear and unambiguous

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4
Q

What determines how active a client is in the creation of an insurance contract

A
  • Sophistication of insurance knowledge
  • Use of a broker and the extent of delegation
  • If there is an in-house insurance/risk management function that chooses to become involved
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5
Q

Parties in an insurance contract

A

Insured
Insurers

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6
Q

Parties in an insurance contract: Insured

A

Typical clause will state:

Insured: XYZ Co, and all other subsidiary and associated companies

  • Possible to have additional insureds as well as a main one
    - Important to consider if the other insureds have the same rights and obligations
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7
Q

Rights and obligations of additional insureds

A
  • Can they be chased for premium not paid?
  • Can they make claims independent of the main insured?

if no, they do not have unrestricted access to the contract

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8
Q

Joint insurance policy

A

2 or more parties are insured and their interests are the same (e.g. co owners)

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9
Q

Composite insurance policy

A

2 or more parties but their interests are not the same (e.g. Landlord and tenant)

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10
Q

Parties of an insurance contract: Insurer

A
  • London market written on subscription basis (not always 100%)
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11
Q

Coverholder/MGA

A

3rd Party which receive delegated underwriting authority under a binding authority

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12
Q

Joint insurance policy - Breach of obligation

A
  • Contract is indivisible
  • Breath of any term from one insured will lead the insurer to have the right to invoke any legal remedies against all insureds
  • If serious enough, could lead to whole contract being avoided
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13
Q

Composite insurance policy - Breach

A

If one party is entirely innocent, any breach by the other parties will not invalidate their cover

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14
Q

Insurers regulatory responsibility with knowing who is part of a contract

A

Insurers must make sure all contracting parties are not banned persons/organisations to be trading with

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15
Q

Parties that have access to an insurance contract whilst not being a party of it

A
  • 3rd party (rights against insurers) Act 2010
  • Contracts (rights of Third Parties) Act 1999
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16
Q

What happens if the insured of a 3rd party insurance contract is bankrupt/insolvent?

A

3rd Party (Rights Against Insurers) Act 2010

  • Changed common law so that the injured third party has an insolvent insureds right to claim on its insurance transferred
  • Claim is wrapped into one legal action the court is asked to consider against the insolvent insured and insurers at the same time
  • A 3rd party may still not receive compensation if there are applicable exclusions
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17
Q

Contracts (Rights of Third Parties) Act 1999

A

Gives rights to outsiders of an insurance contract

  • Typically gives the right to enforce a contractual term

Contract must
- Proivde that outsides can enforce it
- Appear to confer a benefit on said third party (unless its not intended to be 3rd party enforceable)

applies to all types except those specifically exluded

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18
Q

Contracts Act 1999 - Cargo Exclusion

A

JC2000/002

“Provisions do not apply to this insurance or to any certificate(s) of insurance issued here under. No third party may enforce any term of this insurance or of any certificate issued hereunder.

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19
Q

Consensus Ad Idem

A

Meeting of minds

Both parties are entering into a contract where they both believe they are achieving the same complete agreement

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20
Q

Mitigation of risk - Sanctioned Entity (Insurer)

A
  • Get as much detail as possible about insured and potential additional insureds
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21
Q

Mitigation of risk - Poor rating (Insured)

A

Make clear who bears the ultimate risk

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22
Q

Mitigation of risk - Subject matter

A
  • ## Use distinguishing factors (reg numbers etc.)#
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23
Q

Mitigation of risk - Location

A
  • Use unique data such as post codes to ensure no ambiguity in location
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24
Q

Mitigation of risk - Regulatory breaches

A
  • Always check permission status early
  • Can be different between Lloyd’s and Company insurers
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25
Mitigation of risk - Policy limit
- Make financial implications clear
26
Mitigation of risk - Excess or deductible
Make max payout clear
27
Excess vs deductible
Policy limit sits about excess Deductible is taken off policy limit
28
Mitigation of risk - Costs in addition or costs inclusive
- Whether or not the legal costs payable by the insurers erode the policy limit or not - if inclusive, potential for compensation to injured party to be much lower Must make clear which contract applies
29
Mitigation of risk - Policy Period
Specify time using 24 hour clock or both days inclusive state time zone
30
Mitigation of risk - Conditions
Make sure documentation sent to the client is as clear as possible If using standard wordings, make sure everyone is clear on their meanings
31
Mitigation of risk - price
Always use the ISO codes (CAD, NZD, GBP)
32
Mitigation of risk - Taxes
Check tax requirements carefully for different territories
33
Mitigation of risk - Post-bind decision makers
Read full agreement carefully
34
Mitigation of risk - Dispute resolution provisions
Make clear the agreed method for resolution (arbitration or litigation) Make clear which law will apply and where the court will sit
35
Contract Certainty
Complete and final agreement of all terms between the insured and insurer at the time they entered into the contract
36
Contract Certainty Code of Practice - Principle A
Insurer and broker must ensure that all terms are clear and unambiguous when the offer is made to enter into the contract or the offer is accepted
37
Contract Certainty Code of Practice - Principle B
Contract documentation must be provided to the insured promptly
38
Contract Certainty Code of Practice - Principle C
Insurers and brokers must be able to demonstrate achieving Principle A and B
39
Contract Certainty Code of Practice - Principle D
Contract changes need to be certain and documented promptly
40
Contract Certainty Code of Practice - Principle E
Contract must include an agreed basis on which final participation is decided
41
Contract Certainty Code of Practice - Principle F
The final participation must be provided to each insurer promptly
42
Contract Certainty Code of Practice - Principle G
Insurer and Broker have responsibility to resolve exceptions to other principles as soon as possible
43
Using model clauses in a slip
No need to put the whole text just the clause reference (library code)
44
Deleting an exclusion
makes the contract coverage wider
45
Client benefits to cutting and pasting clauses
If the T+Cs are broadened Some area is made clearer
46
Downside to chopping and changing clauses on same topics
Greater risk of contradiction, conflict and ambiguity
47
Regulation requiring specific wordings
- When a specific language is required Algeria - French Belgium -French or dutch unless requested France - French Israel - Hebrew unless English is requested
48
Service of suit clause
General requirement in US contracts that agrees that insurers are prepared to be sued in a court in the US.
49
Side letters
Used to include sensitive matters a party doesn't want shared
50
Uses for side letters
Clarification - Clarify certain points Variation - Easier to set out relevant details in last minute changes Efficient means of documenting any changes
51
Reverse engineering for wordings
Particular to the reinsurance market, the process of an insurer writing direct business and then obtaining reinsurance is flipped
52
Fronting
Direct insurer is inserted into the middle of a insured and reinsurer reinsurer will put the contract terms together and then the direct insurance contract will be inserted between the client and reinsurer
53
Micro-enterprise
satisfies both - employs fewer than ten people - annual turnover less than 2m euros
54
Small business
50 employees turnover of less than £6.5m
55
Who can use FOS
Micro-enterprise + small business
56
Consumer rights Act 2015 - Contract term Transparency
Expesses in plain and intelligible language and , if written, is legible
57
CWG
Consumer Wording Guidance
58
FCA Consumer Duty Guidance
Applies to both consumers and SME customers need to ensure customers understand the products they are buying
59
Why might overseas insurers use london market contract elements and vice versa
- Model wording for the product in another (non-london) market is wider than the london equivalent and the customer may want the wider wording - Insurance placement has been led by another non-london insurer and only part is in london. Not helpful to have 2 different sets of terms and conditions
60
Issues with mixing contract elements
- Is the english translation accurate and have legal standing? - Additions to wordings may not have the same result if the model wording they are adding is different, potentially adding ambiguity - interpretation of contracts. Important to check overseas wording has an inbuilt dispute resolution contract - some conditions may not be legally recognised in some jurisdictions
61
What court might have to review
If the MRC is the only contractual document sent, courts will be asked to work off it. If a formal policy is created from the MRC, this becomes the primary document
62
2 sets of guidelines the courts use when considering a contract
- Statutory rules such as Consumer Rights Act 2015 and Insurance Act 2015 - Common law rules
63
Ordinary Meaning
Court assumes the parties intended the words to have their ordinary meaning
64
Technical or legal meaning
- Words may have well-establish technical/legal meaning which will be used instead. Insurance is ful of words that have different meaning
65
Average meaning
Ordinary - Typical/Normal Non-marine insurance - Underinsurance Marine insurance - Loss
66
Technical meaning
if a word has technical meaning, must be shown both parties were familiar with the word or phrase in its intended form
67
Ejusdem Generis
Of the same kind The context of the main list of items is applied to consider other perils which would be naturally included
68
Navigators Insurance Co v Atlasnavios-Navegacao
Around the intepretation of an exclusion in a marine war and strikes policy whether an infringement due to malicious acts of a third party was excluded or not
69
Contra Proferentum
Ambiguities will be interpreted on construed against the drafter
70
Unfair terms
Unfair terms in consumer contracts will be intepreted against the insurers
71
reverse contra proferentum
180 degrees if the client is driving the contract. Insurers might be given the benefit of the doubt
72
Wordings specialists
- Skill to read and review complete contracts to work out if they fit together are clear, fair, non-misleading, cohesive and above all make sense
73
Key functions of a wordings person
- Reviewing contracts for ambiguity - working on developing new products/contracts with regulatory and statutory requirements (home/overseas) in consideration - consider issues which arise from claims/complaints - monitoring law changes
74

LM3 (5 decks)

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